By Greg Peel
The Dow closed up 21 points or 0.2% while the S&P managed 0.1% to 1211 and the Nasdaq added 0.4%.
Wall Street stumbled from the start last night following Wednesday's strong session, failing to capitalise on strong moves from Yum and UPS. The Nasdaq nevertheless continues to outperform in the wake of the Intel result, with expectations positive last night for the Google result which was ultimately released after the closing bell.
A mixed batch of economic data crimped ongoing Wall Street excitement, beginning with another unexpected increase in weekly new jobless claims. A further 24,000 new claims were made taking the rolling number to 484,000, despite economists having expected a drop.
US industrial production rose 0.1% in March against expectations of 0.2%. The number was weighed down by a 6.4% decline in utility energy output attributed to the early spring. Manufacturing output increased 0.9% which was a strong result.
The ongoing recovery in US manufacturing was confirmed by both the Philadelphia Fed and Empire State (NY) activity indices. The Philly index rose from 18.9 in March to 20.2 in April to mark its eighth straight monthly gain. The Empire index was the star however, rising from 22.8 to 31.8 when economists had expected 24.0. That's the biggest monthly gain in six months.
There was also a surprise gain in the National Association of Home Builders monthly housing sector sentiment index, which rose from 15 to 19 despite the expiration of government and Fed stimulus and evidence of renewed weakness in housing.
The manufacturing and housing data were enough to lift the Dow back over the flat line last night, shaking off jobless claims concerns. The Fed is specifically looking for improvement in employment and housing before it would consider raising its cash rate, and despite an obvious recovery in manufacturing.
The industrial production data included a small lift in capacity utilisation, from 73.0% to 73.2%. While this is the best figure since November 2008 it still fell below expectation and implies over a quarter of US factories remain idle. This is another reason cited by the Fed as to why there is no pressure on inflation, and thus rates.
Long term foreign purchases of US dollar assets increased by US$47.1bn in February, a big improvement on the US$15bn increase in January. But then last month's estimate had a net decrease of US$33bn initially in January before revision, once again highlighting the dangers of trusting US economic data first up. What was interesting, nevertheless, is that foreign central banks accounted for only US$1.2bn of net purchases in February.
The situation was not so rosy over in Greece, and on Greece's request officials from the EU and IMF will fly to Athens for talks on Monday. Last night the Greek ten-year yield again blew out 40-odd basis points before recovering a bit later in the day. Clearly the Greek government is ready to concede that its borrowing situation is untenable and it's time to call in the cavalry.
China's strong GDP result was also not lost on Wall Street last night. The better than expected result is nevertheless potentially an adverse influence as it suggests China must push ahead on further tightening measures, which is effectively a negative. However, talk out of China is that Beijing is unconcerned about 11.9% growth, noting that it is a year-on-year comparative figure to what was a weak quarter last year and that the pace of acceleration in GDP growth is actually slowing from quarter to quarter. Thus many economists maintain any interest rate or currency moves will be held off until later in the year. Beijing may, nevertheless, move to further tighten bank capital requirements as it did earlier this year to slow lending to the property bubble continuing behind the scenes.
See China's GDP Release Surprises Once Again.
The Greek dilemma saw the euro slipping again last night, pushing the US dollar index back up by 0.3% to 80.46. The Aussie was steady at US$0.9353.
Gold rose despite the US dollar by US$4.00 to US$1158.80/oz in response to Greece. London metals traders nevertheless cited the strong Chinese data as reason to buy last night. Nickel made a fresh surge to challenge May 2008 levels by rising 3%, accompanied by substitutable partner zinc with a 2% gain. Copper had yet another go at US$8000/t and yet again failed, actually closing slightly lower at US$7960/t.
Nickel's recent run has been attributed to a supply shortfall in stainless steel, along with short-covering from commodity funds misreading the strength in the first place. However, traders note that Russia typically ships a lot of nickel from its Siberian port before seasonally flooding in the summer, so expectations are for a sudden pick-up in supply these next few weeks.
Oil began the session in a positive mood, again on the Chinese data. But news of a bigger than expected jump in refinery utilisation (meaning increasing gasoline supply) and another increase in natural gas inventories (sending natgas down 5%) dampened enthusiasm. Oil closed up US2c at US$86.75/bbl.
The SPI Overnight was down 4 points.
I have noted in this Report previously that there is a brick wall of resistance for the ASX 200 at 5000. While the S&P 500 is managing so far to hold above its equivalent 1200 break-down mark, yesterday's local trade reinforced that a bit of work has to be done before 5000 can be breached in earnest. There may be the occasional raiding party sneaking past defences, but apparent profit-taking yesterday is evidence a clear new leg up will require a bit more fundamental incentive.
The US reporting season is clearly a swing factor here. After the bell last night Google reported earnings of US$6.76 per share and revenue of US$5.06bn against expectation of US$6.60 and US$4.95bn. But the apparently strong result did not inspire investors and Google shares are down 5% in the after-market. Aside from “sell the fact” profit-taking after a previously strong run in Google shares, the result showed a drop in prices paid per ad on Google which was not a positive sign.
Chip-maker Advanced Micro Devices posted an earnings per share gain of US9c on revenue of US$1.57bn against expectation of a US7c loss on revenue of US$1.54bn. But its shares are also down 5% in the after-market, with uninspiring guidance this time to blame. Wall Street had piled into AMD following the stellar result from rival Intel earlier this week.
Tonight in the US sees results for Dow components Bank of America and General Electric. Housing starts and consumer confidence data will also be of interest.
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